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Nvidia is taking video games into the cloud with a new rack server optimized for computer graphics.

The server works in combination with software in a client device and holds the promise of delivering high-quality computer graphics and gaming on devices with relatively modest graphics processing ability, said Jen-Hsun Huang, CEO of Nvidia, during a press conference at International CES in Las Vegas.

Each rack-mounted Nvidia Grid contains 240 of the company's graphics processing units and boasts a total GPU computational power of 200 teraflops, said Huang. Each node can support 24 concurrent users and the entire server has a performance equivalent to 720 Xbox 360s, said Huang.

On stage, he demonstrated a streaming video game running on both an LG flat-screen television and netbook computer. The TV was connected to a receiver box and the netbook ran software. Both the receiver and software connected via the Internet to an Nvidia Grid server.

Huang said that such a service wouldn't be possible using a conventional rack-mounted server because those were optimized for computing, not graphics.

"They have lots of CPU cores and no GPUs," he said.

Nvidia has been working for five years on the device taking on challenges that included shifting data across the internet fast enough to avoid delays in gaming. The Nvidia Grid includes a new, unnamed graphics processing unit.

The company is already testing the device with partners in several countries: Agawi in the U.S., Cloudunion and Cyber Cloud in China, G-cluster in Japan, Playcast in Israel, and Ubitus in South Korea.

Huang also had something to offer PC gamers, one of its core audiences.

GeForce Experience is a software application that scans a PC's hardware and automatically sets it to match the game being played. Typically, PC games feature a complex settings screen that allows gamers to match the game to their system and hardware.

"When you launch the game, GFE magically inserts the settings into your game so it comes up to the most beautiful and playable settings your game allows," said Huang.

He demonstrated a before-and-after image from the Call Of Duty game. With GFE enabled, the game screen appeared to be sharper with a higher definition.